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Many people rely on Social Security for a good portion of their retirement income. Unfortunately, seniors could soon face cuts to a crucial source of funds. The Social Security OASI trust fund is expected to be depleted as soon as 2032, according to the most recent Social Security Trustees’ report.
If reform doesn’t happen and the trust fund is depleted, Social Security can’t pay all the promised benefits, which means a cut will be coming. This cut will hit everyone hard, but couples relying on dual Social Security checks will likely see a substantial portion of their income disappear if it happens.
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How much will the average couple lose if Social Security benefit cuts happen?
According to the Committee for a Responsible Federal Budget, a typical dual-earning newly retired couple would lose an estimated $16,900 in annual benefits at the start of 2033 if the projected Social Security benefit cuts go into effect.
This dire prediction is based on the trustees’ warning that Social Security will only have enough to pay 78% of promised benefits once the OASI trust fund is depleted in the fourth quarter of 2032.
Of course, the cuts would vary depending on current income. The Committee for a Responsible Federal Budget revealed that a typical single-income couple might face annual losses of $12,700, while a high-income, dual-earning couple could lose $22,300 in benefits. Regardless of the specifics, most retirees would suffer financially if they lost about 22% of their monthly paycheck.
There are fixes, but lawmakers need to take action
Since the Social Security trust fund is still years away from running dry, the good news is that these cuts won’t happen tomorrow. There’s still time to avert them. The bad news is that the longer lawmakers wait, the worse the shortfall becomes. As money is paid out to recipients every month, the program’s reserves decline, and its financial state worsens.
The longer lawmakers wait to act, the larger a tax increase or benefit cut will need to be. Potential fixes could include raising the full retirement age, increasing the payroll tax, or making more income subject to Social Security taxes (currently, higher earners pay Social Security taxes only on a portion of their income). However, all of these approaches have downsides and face significant opposition, making shoring up Social Security a major challenge.
Still, workers and future retirees need to make their retirement plans with confidence, so lawmakers should try to move forward sooner rather than later because cuts of this magnitude would be very hard for a senior couple to overcome.
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